On Modi Year 1, bad news for foreign investors!

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On Modi Year 1, bad news for foreign investors!Under the wrong impression that disputes related to minimum alternate tax (MAT) were on hold for some time, overseas investors got an unexpected jolt last week when the income-tax department issued notices to foreign portfolio investors (FPIs). They were informed that the hearing of MAT disputes would start soon.
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The Dispute Resolution Panel (DRP) of the income-tax department sent notices which said the investors would have to submit any additional material in this regard within the next nine days.

The investors were relaxed after Finance Minister Arun Jaitley’s reassurance about the retrospective levy of MAT. Further, they thought the hearing is on hold until a newly constituted government panel reported on the matter or the Supreme Court gave its ruling on a MAT case.

The government last week formed a three-member committee under retired judge AP Shah to see whether MAT could be levied on FPIs. The committee is expected to submit its report in three months. Besides this, a case between the revenue authorities and Castleton (an FPI) is currently pending in the Supreme Court.

"The DRP has sent notices to FPIs asking them to immediately submit additional details, which they had not submitted before the assessing officer or additional grounds regarding their ongoing appeals," Rajesh H Gandhi, partner, tax, Deloitte Haskins & Sells told the Economic Times.

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The dispute, which has unnerved foreign investors, began when the income-tax department started sending notices to FPIs about six months ago asking them to pay MAT for FY12.

Many tax experts say MAT cannot be applied to an entity that doesn't have a so-called permanent establishment in the country. By the last week of March, several FPIs had been served with notices asking them to pay the tax.

The government intervened after many FPIs lashed out at what they described as the uncertainty plaguing India's tax administration. The government has been at pains to change the image of India as being aggressive on taxation in order to drum up investment.

The cases filed in the high court have not been heard as yet, presumably because it would ideally like to wait for the committee's report or the Supreme Court judgment, experts said.

(Image: Indiatimes)